M&C Report talks to Enterprise Inns senior management team - chief executive Ted Tuppen, chief operating officer Simon Townsend and finance director Neil Smith - about succession planning, a restructure of its management team, developing its own version of Punch’s buying club, debt manageability, its business failure rate and further investment.
Retirement
Enterprise Inn’s results announcement was dominated by news of chief executive Ted Tuppen’s imminent retirement. But the positive market reaction to that bombshell (at the time of writing Enterprise’s shares were up 7% to 148p) suggests the market agreed with his assessment that the company is now in strong position to return to growth in his absence.
“I would not be retiring if there were any serious issues left in the business,” Tuppen told M&C Report. “It was a good year after a tricky start, and we’ve been able to move on to the front foot. Now we are more in control of our destiny.”
Like for like sales growth
Reporting like-for-like (lfl) sales up 0.6% in the final quarter, which put a gloss on a full year lfl decline of -2.9%, Tuppen added: “Positive like-for-likes are our objective. Now we’ve dealt with the damaging impact of the financial crisis for the past 5 years, we are well placed to achieve that. This year has started well, though it remains a tricky and fragile market.”
Analysts’ consensus forecasts are for lfl growth of between 0% and 1% for the year ahead. Tuppen said: “We can focus resources on things that drive the business forward, rather than prevent it going backwards. To drive sales and grow the profit cake.”
Debt
Tuppen insisted that Enterprise’s improved debt position is “the most important milestone” for the business. “We’ve reduced our overdraft to £41m, almost petty cash levels, from over £1bn at its peak. So we’ve removed the bank financing risk – and the debt can now be managed from operational cash flows.
“Previously, all the cash we generated went to reducing debt; now we have returned to where we were in 2007.” Proceeds from Enterprise’s disposal programme – of circa 200 pubs a year for around £60m a year (for the next three years) – will now be entirely available for reinvestment in the estate.”
Finance director Neil Smith added: “We have no remaining concerns about debt manageability. Very little of what debt remains is short term.” He illustrated the company’s cash-neutral earnings growth position: the business generates c.£109m of cash annually, disposals will provide the cap ex, amortisation accounts for £70m, which leaves more than £30m of cash headroom per year.
Investment
Disposals to achieve the £60m targeted levels of investment will be focused on the bottom end of the estate – unviable pubs and those generating the lowest returns. Tuppen said there would be “no more gold-brick sales to generate cash – though of course if we get an offer we can’t refuse…”
Smith added: “If we sell pubs earning 5%, and reinvest that money into pubs earning 10%, we’ve got 5% of £60m of extra profit.”
CEO designate Simon Townsend insisted: “We don’t have a formulaic approach to investment – it will both large and light touch, designed to have an impact on as large a part of the estate as possible.” And Tuppen even hinted at the possibility of Enterprise returning to the property market as a buyer – which would be the first time for five years.
As well as refurbishments, he said initiatives such as discounts on Sky and BT Sport, as well as free wifi for Enterprise licensees, are anticipated to attract additional footfall and customer dwell time.
Townsend revealed that Enterprise has been developing its own version of Punch’s buying club, which will be launched after March next year. “Some of the things we’ve done, for example the Sky, BT and wifi deals, have been moving us in that direction – where we’re using our leverage and skills to fund a package of value for our publicans. But we are going to be launching our own digital platform to provide more online capability, online ordering etc – a portal into wider purchasing opportunities – in the second half of our financial year.”
Business failures
Enterprise’s results announcement revealed that the “business failure rate” within the estate has fallen to 579 in 2013 from 972 at its peak. Townsend said: “There’s no acceptable rate, because there’s no such thing as a good business failure – though a change of publican can be a catalyst for growth.” He added that in around half of the 579 cases, Enterprise had agreed to take a lease surrender.
He added: “Frequently it’s the people we have supported most over the years who turn out to be those who complain most about the reasons for their business failure. We don’t publish all the things we’ve done for the publican in these cases, and we try to be very selective in terms of our response when false claims, misrepresentations and lies are publicised.”
Succession planning
Succession planning and management structure have been key elements of Tuppen’s focus in recent years, he revealed, as he worked on “developing the skills and experience of the senior management team”. As Townsend moves into the CEO role in February, there will be no direct replacement as chief operating officer.
Tuppen commented: “I’m delighted that Simon has been able to take over. He’s been with me since 1999, and is very well qualified and experienced. Our divisional MDs, Nick Light, Ian Ronayne and Kim Francis, are being upgraded to take COO responsibility for their sectors.”
Tuppen himself said he is looking forward to taking a break, and would not be drawn on potential roles either within or outside the pub sector. “I’ve got a few months left to be CEO, and then I’ll be around in the business for a while after that, as I have a few projects to be involved in, not least the BIS consultation.”
